ERCOT v Panda: The Texas Supreme Court’s non-decision on ERCOT immunity

On March 19, 2021, a divided Texas Supreme Court declined to determine whether the Electric Reliability Council of Texas Inc. (ERCOT) is entitled to the protection of sovereign immunity and thus is shielded from lawsuits. The outcome was hotly contested, with four justices issuing dissents.

The Court’s decision leaves the immunity question open at a time when a growing number of lawsuits have been filed against ERCOT stemming from the February 2021 weather disaster, Winter Storm Uri. The outcome of Panda paves the way for the issue to return to the Court, likely some time next year.

ERCOT v Panda

The consolidated case of ERCOT v Panda involved ERCOT, which manages the power grid covering most of Texas, and Panda Power Generation Infrastructure Fund LLC, which is a merchant power developer. Panda sued ERCOT in 2016 for publishing allegedly misleading reports about the scarcity of power in Texas which prompted it to invest $2.2 billion in new power plants, only to face difficulty recouping its expenses as power prices remained low. Panda argued that ERCOT is a private corporation and thus should not benefit from sovereign immunity. ERCOT, in turn, argued it was immune from suit as a government entity. The trial court dismissed ERCOT’s argument, and ERCOT swiftly appealed the interlocutory order. The Fifth Court of Appeals in Dallas determined ERCOT had sovereign immunity and ordered the trial court to enter a judgment against Panda. In response, Panda swiftly filed a writ of mandamus, bringing the matter to the Texas Supreme Court. Meanwhile, the trial court entered a judgment against Panda, which Panda also appealed and is still pending before the appellate court.

Rather than address the government immunity question, the Court instead dismissed the case for procedural reasons. A five-justice majority held that the Texas Constitution prohibited them from ruling on the case because Panda had not exhausted its appeals in the lower courts:  a trial court had already entered a judgment against Panda in accordance with a lower appellate court’s determination that ERCOT was entitled to government immunity and the appeal of this judgment was still pending.^[1] Thus, they said, the case before the Court and Panda’s claim were moot because a judgment had already been entered against it.

Four justices dissented, arguing the Court should decide the issue of ERCOT’s immunity now, especially because the public has a great interest in whether ERCOT can be sued as a result of the power outages from February’s winter storm. “The answer to the immunity issue in this case has become perhaps more important to the public than even to the parties. The parties want to know. The public wants to know. The court refuses to answer.”^[2] Justice Nathan L. Hecht’s dissent also called the majority's decision "potentially dangerous," saying it suggests that courts of appeals can "thwart" review of their decisions by ordering trial courts to comply with them quickly.

Takeaways

In the wake of Winter Storm Uri, an increasing number of consumers in Texas have sued ERCOT for its alleged failure to maintain power throughout the state. The Court’s ruling will allow ERCOT to continue raising the sovereign immunity defense.  As long as this important legal question is unresolved, the path forward against ERCOT will remain uncertain.

While the Court’s decision failed to address the pressing issue of ERCOT’s immunity, it also set up the opportunity for the issue to arise again. Currently, a separate but related appeal involving Panda and ERCOT is awaiting a ruling at the Fifth Court of Appeals in Dallas. This appeal could return the issue of ERCOT’s sovereign immunity to the Court, perhaps in a year or so.  By then, the impact of the February 2021 Texas winter storm and ERCOT’s alleged actions or inactions may make the issue even more closely watched.

To learn more about the implications of these developments for your business, please contact the authors of this article or your DLA Piper relationship lawyer.